Turning Point Brands Inc

Previously Disclosed Material Weakness Related to IT Controls

As previously reported in the 10K filing for year-end December 31, 2023, the Company did not design and maintain effective internal controls related to our information technology general controls (“ITGCs”) in the areas of user access and program change-management over certain information technology (“IT”) systems that support the Company’s financial reporting processes. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of: IT control processes lacking sufficient documentation such that the successful operation of ITGCs was overly dependent upon knowledge and actions of certain individuals with IT expertise and inherent system limitations. The material weakness did not result in any identified misstatements to the financial statements, and there were no changes to previously released financial results.

Disclosure Controls and Procedures

As of December 31, 2024, the Company’s management, with participation of the Company’s President and Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2024, solely due to the previously disclosed material weaknesses related to ITGCs in the areas of user access and program change-management over certain IT systems that support the Company’s financial reporting processes. No financial restatements were made as a result of this material weakness.

Internal Control

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report that provides management’s assessment of our internal control over financial reporting as part of this Annual Report on Form 10-K for the year ended December 31, 2024. Management’s report is included below under the caption entitled “Management’s Report on Internal Control Over Financial Reporting,” and is incorporated herein by reference.

Management’s Report on Internal Control Over Financial Reporting

The consolidated financial statements appearing in this Annual Report have been prepared by the management that is responsible for their preparation, integrity, and fair presentation and reviewed by the Audit Committee of the Board of Directors. The statements have been prepared in accordance with U.S. generally accepted accounting principles, which requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions over the normal and routine course of business, the effectiveness of an internal control system may vary over time.

With the oversight of the Audit Committee of the Board of Directors, and under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024, based on the standardized framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“COSO ICIF”).

According to this standard, a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Based on our evaluation under the framework in COSO ICIF, our management concluded that our internal control over financial reporting was not effective as of December 31, 2024, which was previously reported. The material weakness did not require a financial restatement.

Internal Controls Related to Information Technology and User Access

While we designed and implemented internal controls related to our ITGCs in the areas of user access and program change-management over certain IT systems that support the Company’s financial reporting processes, we did not maintain those controls for a sufficient period of time to effectively demonstrate the operating effectiveness of those ITGCs. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of ITGCs overly dependent upon knowledge and actions of certain individuals with IT expertise and inherent system limitations creating segregation of duties risks for most of the fiscal year.

Our independent registered public accounting firm has audited the consolidated financial statements appearing in this Annual Report and the effectiveness of our internal controls over financial reporting and has issued their reports, included herein.

Notwithstanding the above identified material weakness, management believes the financial statements as included in Part II of this Annual Report on Form 10-K fairly represent in all material respects the Company’s financial condition, results of operations and cash flows as of and for the periods presented in accordance with generally accepted accounting principles in the U.S.

Remediation Plan

In 2024, we have been engaged in the implementation of a new enterprise resource planning (“ERP”) system, which is part of the remediation efforts for our material weakness in internal controls over financial reporting identified. This ERP system will replace our operating and financial systems and is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business.

While we have taken meaningful steps to improve our internal controls, full remediation of the previously identified material weakness was not realized as of December 31, 2024. We anticipate that the remediation will be complete by the end of fiscal year 2025, as at that time the referenced controls will have been in place for a sufficient period of time to demonstrate operating effectiveness.

The Company implemented the following remediation control activities in 2024:

While we have put forth significant resources and effort in our remediation activities described above, ongoing and additional activities are required to fully remediate our material weaknesses. Our ongoing efforts include:

Upon the completion of the steps above, we believe that these actions will remediate the material weakness. However, the material weakness will not be considered fully remediated until the applicable controls have been in place for a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively.

Role of the Audit Committee in Material Weakness Remediation

The Audit Committee of the Board of Directors is actively overseeing the remediation of the material weaknesses. Working closely with management, as well as with the Company’s internal audit, finance teams, and independent auditors, the Audit Committee has and will continue to monitor and evaluate the effectiveness of the remediation throughout the fiscal year ending December 31, 2025. Regular updates on progress have been and will continue to be provided to the Board of Directors, with the Audit Committee ensuring management’s testing of the remediated controls is completed as soon as practicable

Changes in Internal Controls over Financial Reporting

Other than in connection with aspects of our remediation plan, there were no changes in the Company’s internal controls over financial reporting during the fiscal quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.